DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

6 Months Ended

Jun. 30, 2013

DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

6. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

The Company enters into foreign exchange forward contracts to mitigate the risk of changes in foreign exchange rates and they are reported at fair value. The counterparty to these contracts is a bank. Forward contracts designated as hedges of net investments denominated in certain foreign currencies and changes in fair value are reported in the consolidated statements of comprehensive income as other comprehensive income. Foreign currency contracts designated as hedges of net investments in foreign operations were determined to be fully effective during all periods presented. As such, no amount of ineffectiveness has been included in net income. Other forward contracts, primarily related to customer transactions, are not designated as hedges and changes in fair value are reported in current earnings as other income (expense), net.

During the three months ended June 30, 2013, the Company entered into foreign exchange forward contracts with a notional amount of $238 million and with maturity dates of one to seven months. During the three months ended June 30, 2013, contracts amounting to $86 million expired. At June 30, 2013, foreign exchange forward contracts amounting to $202 million were outstanding. The fair value of the foreign exchange forward contracts of $8.28 million is reflected in other liabilities in the balance sheet of the Company at June 30, 2013. During the three months ended June 30, 2013, forward contract loss of $7.98 million, pertaining to direct client related contracts is included as negative other income and forward contract loss of $4.81 million, pertaining to intercompany related contracts is recorded as negative other comprehensive income. During the six months ended June 30, 2013, forward contract loss of $7.39 million, pertaining to direct client related contracts is included as negative other income and forward contract loss of $4.72 million, pertaining to intercompany related contracts is recorded as negative other comprehensive income.

Summary information about the forward contracts to sell U.S. Dollars and buy Indian Rupees as of June 30, 2013 and December 31, 2012 is as follows:

	June 30, 2013			December 31, 2012
Derivatives designated as net investment hedges:
Notional amounts (in thousands)	$	75,150		$	—
Weighted exchange rate		INR 59.40			—
Weighted average maturity		4 months			n/a
Fair values reported in:
Other assets (in thousands)	$	0		$	—
Other liabilities (in thousands)	$	(3,214	)	$	—

The following table presents the net gains (losses) recorded in accumulated other comprehensive income (loss) relating to the foreign exchange contracts designated as net investment hedges for the periods ending June 30, 2013 and 2012.

Gains and (losses) on derivatives

	THREE MONTHS ENDED						SIX MONTHS ENDED
	JUNE 30,						JUNE 30,
	2013			2012			2013			2012
	(In thousands)						(In thousands)
Gains (losses) recognized in other comprehensive income (loss)		$(4,808	)		$(3,477	)		$(4,718	)		$(2,296	)

Summary information about the derivatives not designated as hedges as of June 30, 2013 and December 31, 2012 is as follows:

	June 30, 2013			December 31, 2012
Derivatives not designated as hedges:
Notional amounts (in thousands)		$126,850			$—
Weighted exchange		INR 59.40			n/a
Weighted average maturity		4 months			n/a
Fair values reported in:
Other assets (in thousands)		$0			$—
Other liabilities (in thousands)		$(5,062	)		$—

The following table presents the net gains (losses) recorded in other income (expense), net relating to the foreign exchange contracts not designated as hedges for the periods ending June 30, 2013 and 2012.

Gains (losses) recognized in other income:

	THREE MONTHS ENDED						SIX MONTHS ENDED
	JUNE 30,						JUNE 30,
	2013			2012			2013			2012
	(In thousands)						(In thousands)
Gains (losses) recognized in other income (expense), net		$(7,975	)		$(4,402	)		$(7,399	)		$(3,391	)